A Comprehensive Guide to Total Compensation

It takes more than offering a good salary to get employees to stay. Employees want more than just a bimonthly paycheck — they want an employer that addresses their holistic needs. A full 87% of workers would consider leaving a company that doesn’t focus on employee wellbeing, up from 77% in 2022.

This culture shift has major implications for how HR departments approach compensation. When a hefty paycheck isn’t enough, it’s important to consider your total compensation package. This broader view encompasses the pay and perks a company offers an employee in addition to a salary. 

Leveraging this perspective can help you easily convey your employee value proposition to your workforce and prospective hires. Here’s how you can calculate and better communicate total compensation to ease talent management.

What Is Total Compensation?

Total compensation is all of the payments, benefits, and perks an employee receives added together. Typically, a total compensation package will include any mix of the following these: 

• Base salary
• Bonuses
• Commissions
• Paid time off (vacation days, sick days and holidays)
• Profit-sharing distributions
• Insurance (medical, dental, disability and/or life)
• Tuition assistance
• Child care assistance
• Retirement plans
• Employee assistance programs that offer legal advice, counseling and other services
• Gym memberships
• Stock options
• Tips 

Salary vs. Total Compensation

 Salary is just a part of the total compensation an employee receives for their work.

Salary is the money you pay an employee in exchange for the work they do at your company. Typically it’s an annual amount of money the company will provide the employee, out of which they will have to pay taxes

Total compensation includes any and all payment, benefits, and perks an employee receives, in addition to their. 

Why Total Compensation Matters

Total compensation matters for both hiring and retaining employees. When it comes to hiring, total compensation can lead someone to choose your company over another with similar pay. That’s because they know that they’re getting more in the long run from a company that’s offering higher total compensation. About 38% of job seekers will take total compensation into consideration when choosing a job. 

Total compensation is a powerful tool for retention as well. Your team members need more than just a paycheck to thrive in life. They want a company that focuses on their health and wellbeing and will use compensation to reflect that. 

How to Calculate Total Compensation

 To maximize total compensation, you need to know what you’re currently offering your employees. Calculating total compensation can reveal areas where you can expand your benefits and perks. Here are the basic steps: 

• Start with the base salary. Begin with an employee’s total salary, whether that’s $50,000 a year or $90,000. The rest of the total compensation will be added to this number.  
• Add-in time off compensation. For time off compensation, you will need to multiply the amount an employee makes in a day with the number of vacation days they’re allotted. The same goes for sick time. (Unlimited PTO is often considered a non-monetary benefit, unlike accrued days, so it wouldn’t add to total compensation.)
• Determine insurance costs. Health insurance benefits are required once you have a certain amount of employees. You can add in the true value of any insurance plans offered into the total compensation figure. 
• Add in commissions and bonuses. For some industries and employees, commission makes up the majority of their actual pay.  When commissions and bonuses are part of the compensation plan, that should be included in your calculations.
• Assess any other benefits. If your company offers parking benefits, tuition reimbursement, child care, or gym memberships, add in those values. 

Effectively Communicating Total Compensation to Employees

Conveying an employee’s total compensation rate, above and beyond just salary, can help keep your team engaged and even lower turnover. This is the typical breakdown for how much each part makes up total compensation: 

• Salary makes up 60–80% 
• Benefits make up 30% 
• Additional perks make up 10–20%

Showing your team their entire compensation breakdown helps them see exactly how much they’re really making. A simple way to do this is by sharing compensation statements. These show employees what benefits and perks are offered to them, what they’re currently using, and how to get started with the ones they’re not taking advantage of yet. 

Employee Wellbeing: A Critical Part of Compensation

Ensuring that your team members are fairly compensated for their work matters. Defining fair compensation requires a broad lens — clearly, monetary compensation isn’t the only important factor. When 93% of workers consider their wellbeing as important as salary, employee wellbeing programs are a critical part of your total compensation package. 

More than 15,000 companies trust Wellhub with their employee wellbeing. Our flexible subscription gives them access to more than 50,000 wellness providers. Whether employees want to improve their physical or mental wellbeing, Wellhub can help. 

Talk to a Wellbeing Specialist to learn more about how we can help you create programs that support your employees.

References

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